Warren Buffett Watch

The Tom Brokaw piece on NBC Nightly News Monday night highlighting Warren Buffett's call for a higher tax rate on very wealthy Americans includes an excerpt from a sit-down interview with Buffett.

You can see the Nightly piece and read the transcript in the Warren Buffett Watch post NBC's Tom Brokaw Puts Spotlight on Warren Buffett's Call to "Tax the Rich!"

Brokaw appeared on CNBC's Squawk Box the next morning with a few more minutes of the interview and for a discussion with the Squawk team that turned into a semi-debate between Joe Kernen and Brokaw.  WBW post: CNBC's Kernen Challenges Buffett's Call for Higher Tax Rates on the Rich.

With many thanks to our colleagues at NBC Nightly News working with CNBC's Patti Domm (who also writes the always informative Market Insider blog on CNBC.com), Warren Buffett Watch is now able to bring you Brokaw's complete interview with Buffett.

Along with tax rates, the two also discuss:

• Threats to the U.S. economy
• A million dollar challenge to Buffett's "fellow rich guys"
• Investing in China and human rights
• CEO compensation

The interview is presented here in two parts.  The first part appears below. 

The second part is on a continuation page.

PART ONE: BUFFETT and BROKAW

Tom: Mr. Buffett, everyone's obviously concerned about what's going to happen to the American stock market and to the economy for that reason. Is there reason to be concerned about the fundamentals of the American economy?

Warren: Not over the long term. I mean, in the last century-- American standard of living in real terms improved seven for one. We've-- we've got a system that works well. But we will have recessions from time to time. There-- we had 'em in that century. We had the Great Depression in that century.

But still at the end of the century, seven for one is not bad. And-- we could be-- we could be heading into a recession now. I don't know. But certainly there are some signs of that. And-- and there are certain fundamentals that are out of whack for-- temporarily. But they will get solved over time.

Tom: Is the housing crisis as serious as a lot of people think it is?

Warren: I think it probably is. There-- there are a lot of people that-- have mortgage payments that they simply aren't going to meet. Housing price appreciation which was built on everybody's model a few years ago is not going to occur for a few years. In fact, it could well be depreciation. And that changes the game a lot. It'll get solved eventually. We've got a growing population, which helps us if we get out of whack in terms of the-- the houses available. Population solves that. But it doesn't solve it next month, or even next year.

Tom: Well, you've got some businesses that are attached to housing. Furniture, for example.

Warren: Right.

Tom: When something goes wrong in housing, it really does drop down through the economy. Appliances, furniture--

Warren: You bet. (LAUGHTER) We-- we have-- we have furniture stores in a number of cities, and what you see is in a Las Vegas, where-- where the foreclosure rate is very high, sales are way off there. On the other hand, in Omaha, in Kansas City, they're up.

Tom: Are you surprised there's not more talk in this presidential campaign about economic fairness and economic justice?

Warren: Yeah. I-- I-- I am surprised-- it may be that everybody wants to be cautious-- while they're looking to get nominated, but-- but the degree to which the-- economic-- well, the taxation system has tilted toward the rich and away from the middle class in the last ten years is-- is dramatic, and I don't think it's appreciated. And I think it should be addressed.

Tom: You've gone very public with this.

Warren: Right.

Tom: You've talked about in your office, for example, you pay a much lower tax rate with all of your wealth than, say, a receptionist does.

Warren: That's exactly right, Tom. And I-- I think the only way to do it is with specifics, and-- and - and in our office, 15 people cooperated in a survey out of 18. I didn't make anybody do it. And my total taxes paid-- payroll taxes plus income tax-- and the payroll tax is an income tax. It's based on income.

Tom: Yeah.

Warren: Mine came to-- 17.7 percent. That-- that was the-- that was line 61 I think-- or, no, line 43-- is the percent of taxable income, plus payroll taxes, 17.7 percent. The average for the office was 32.9 percent. There wasn't anybody in the office from the receptionist on that paid as low a tax rate. And I have no tax planning. I don't have an-- I don't have a-- an accountant. I don't have tax shelters. I just follow what the U.S. Congress tells me to do.

Tom: Why do you think that there's not more outrage about that?

Warren: I-- I don't think people understand it. For one thing, you'll see a lot of surveys that say the rich, the top one percent pay this much of the income tax. Now I think what people don't realize is that almost one third of the entire budget comes from payroll taxes. And payroll taxes on income, just like income taxes are taxes on income.

And the payroll tax is over $800 billion out of two and a trillion, or something like that. And people don't understand-- they-- they-- that the rich pay practically no payroll tax. I mean, I paid payroll tax last year on $90 odd thousand, whatever the number is. I paid income tax on $66 million. But my double income tax, one of 'em quits at $90,000. And the remaining $66 million does not get taxed with payroll tax. So, the person who makes $60,000 in our office gets ta-- taxed in full on the payroll tax, and taxed in full on the income tax. And-- and all the statistics you read, particularly the one don't like taxes, well now, they totally ignore the payroll tax. And it's huge now.

Tom: Of all the tax lines that you've seen proposed over the years, a flat tax, a consumption tax, a more progressive income tax, which is the one that appeals to you the most?

Warren: Well, in theory a progressive consumption tax makes the most sense. I mean, if you tax the people who use the resources of society rather than ones who-- who-- who provide the resources of society, that makes more sense. And a consumption tax can be very progressive.

You can have just an unlimited IRA. As long as you invest money, and don't actually spend it for yourself, or your kids don't spend it, or whatever-- you don't get taxed. As soon as you start making withdrawals from society's bank, start using the resources, the-- the sweat of other people to-- benefit yourself, you would pay on that. That-- that's the one that makes the most sense. I don't-- it isn't gonna happen-- in all likelihood.

Certainly the worst taxes-- is something like a sales tax. I would say that we've got a pretty bad system, when we tax the person who-- who cleans out my office, the receptionist. They are paying 15-- payroll taxes, over 15 percent now, just for openers.

Most of my income is taxed at 15 percent, and-- and doesn't pay a payroll. Mainly it’s dividends and capital gains. And if you look at the For-- Forbes 400, a bunch of my fellow rich guys-- they will-- their tax rate overall to the federal government will be less than that of their receptionist. And I challenge anybody. If they want to make me a bet on that, and I've urged Congress, both the Senate and the House, to get the figures anonymously from the IRS. Just look at that Forbes 400. Takes a billion three to get on the Forbes 400 this year. And the aggregate wealth is just staggering. And those people are paying less percentage of their total income to the federal government than their receptionists are.

Tom: Will you put some money on the table on this one?

Warren: What--

Tom: You said-- you said you'd pay a million dollars to somebody.

Warren: I'll-- I'll bet-- I'll bet a million dollars against any member of the Forbes 400 who challenges-- me that the average for the Forbes 400 will be less than the average of their receptionists. So, I'm-- I'm-- I'm-- I'll give 'em an 800 number. They can call me. And the million will go to whichever charity the winner-- designates.

Tom: How much are you hearing from your fellow rich fellows, as you describe them?

Warren: I don't hear anything. They're happy. They are not paying the tax rate their receptionists are.

Tom: Why do you think that is? I mean, Congress took a look at this this year with the hedge fund operators.

Warren: Right.

Tom: Who are getting taxed at about 15 percent.

Warren: And they-- and they're screaming about that. And they-- and-- and it-- and they're often deferring taxes by-- by using-- foreign tax statements. And what happens--

Tom: But why-- why won't Congress step up on this in your opinion?

Warren: Well, I-- I-- I don't know the answer to that. I do know that the hedge fund operators made a record amount lobbying-- in recent months, so they give money to the political campaign and-- and who represents the cleaning lady?

Tom: The hedge fund operators and the U.S. Chamber of Commerce and others have said, "It's going too far." In fact, the hedge fund operators have created enormous wealth for the little guy as well, pension funds and other people who participate in those private equity partnerships. And so in the end it really does spread the wealth in a way.

Warren: Well, they say they work hard and that in the process of working hard they make other people money. And-- and that's true of you. That's true of a whole bunch people in the world. But that doesn't entitle them to a preferential tax rate. And the-- and the truth is that their occupation is going to work everyday. Working on the companies they buy, or working on trying to find what securities are cheap.

And when they get-- the day is done, they are taxed at a lower rate on-- on so-called carried interest and that sort of thing, they are taxed at a lower rate than the beginning rate for their cleaning lady and the payroll tax, forgetting about our income tax.

And the truth is that-- that-- that group, and really all the rich in one way or another-- have lobbyists, you know, coming out of their ears. And are down there-- whenever-- whenever something threatens their favored status, they are in Washington, you know-- en mass. And who is there representing the person that pays the payroll tax? I don't know of any group that is going around saying the-- that is saying, "It's too tough for these people who-- barely eke out a living to be paying 15 percent on payroll taxes."

Tom: Well, the Senator just across the state line here, Charles Grassley, of Iowa has spoken out about this.

Warren: I'm for him. He's a terrific guy. I mean, he-- he really wants to do something about it. But he's a very lonely man.

Tom: On the Democratic side where you would think this would be a hot issue, there hasn't been a lot of people-- there haven't been a lot of people …

Warren: No. They-- they talk about it some. But they-- they feel the pressure of money and politics, and-- and you know how-- how the number of-- of-- of lobbyists has mushroomed. And a number of the hedge-- or the private equity people were down there personally lobbying going from one Senator to another. And-- and these people make campaign contributions. They hire lobbyists. And I just don't know who's lobbying on behalf of-- of the person-- the people in my office.

Tom: Grover Norquist, who is-- the anti-tax guy, mostly on the Republican side. Why isn't there a Grover Norquist representing the receptionist and the cleaning lady?

Warren: Well-- maybe I'm trying to be that, but maybe I'm-- ineffective. And-- and it-- it's-- you know, people-- it's that old story, you know, don't-- don't tax you. Tax-- don't tax me. Tax the fellow behind the tree. Everybody hates taxes, and-- yeah. But if we're gonna raise two and a half trillion, we've gotta get it from somebody. And-- and it's-- it's very nice to say that, you know, that "I'm too heavily taxed and they should get it from somebody else." But they get-- they get almost a third of that money from the payroll tax now. And nobody ever talks about it.

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